Building Blocks - Issue 32 - September 2017
Is a dedicated on-site contract resource right for your project?
Eric Hermanns, Major Capital Projects Advisory, Edmonton
For many projects, dedicated “contract-focused” resources are based in the corporate head office. They provide support to the project from afar, and are periodically called upon to offer contractual advice to the on-site project team. However, given their distance from the project, they typically have little background or insight into the project’s day-to-day operations.
It may be beneficial to have resources on site to handle the execution and administration of the project’s contracts. These resources will be responsible for contract issue resolution, change management, invoice attest and ad-hoc support for other project team members.
Having a contract-focused, site-based resource may not be right for every project. For example, the cost-benefit ratio may not make sense for a small project with a relatively simple scope and short lifecycle. In this case, an existing on-site project resource (such as the project controls resource) can be tasked with the contract administration responsibilities.
Let’s take a look at the benefits of having an on-site resource.
A dedicated on-site contract administration resource can identify areas of contract non-compliance, whether through invoice attest, review of contractor change requests or enforcement of other contract clauses. This can help the project avoid costs that may have otherwise been incurred, thanks to the resource’s in-depth knowledge of the contract and understanding of the project’s operations.
The source of cost avoidance is dependent on the type of contract. Cost-reimbursable contracts will see the most value from the invoice attest process, as the contract resource will compare the contractor’s invoiced costs to those eligible in the contract. The change management process will provide the most value under a lump-sum contract, as the contract resource will review contractor-proposed changes against the project’s scope to determine if the proposed changes actually will result in a change in scope.
One of the primary concerns with dedicating a full-time resource to administer the project’s contracts is the increased cost. Not only are you adding another resource’s salary to the project, but also all the potential expenses related to having them on site, including living-out allowances, travel, uplift and more. However, such costs can be balanced by the fact that the on-site resource should be able to help avoid other unnecessary costs to the project.
Easing the burden on other project resources
On-site contract management is often left to the project controls resource, or even the project manager, who perform the contract management as a secondary responsibility to their regular duties. This means that contract-related issues are sometimes left by the wayside, as there’s not enough time in the day for these other resources to perform their primary duties while devoting the necessary amount of time to contract administration.
Normally in this scenario, the corporate contract resource would provide support to the project team. But given the time it takes to brief the corporate resource on the issues and the background, it may be quicker for the project team to resolve the issue themselves, at the expense of their normal duties. An on-site contract resource who is part of the project team removes this burden from the project’s other resources, allowing them to concentrate on their primary responsibilities.
Effective change management
As a result of their deep knowledge of the contractual documents, the contract administration resource can also be a valuable asset in the effective oversight and control of change management. The resource can review proposed changes to the project and verify the change requirements against the contract’s language.
The contract administration resource’s primary task would be verifying that the vendor is eligible to claim a change, since the contract may include language that precludes the vendor from claiming a change. Contract administration resources would rely on others in the project team to provide any technical guidance necessary to verify a change request and would advise the project management team of any contractual wording that might negate the change request.
Having the contract administration resource review a change request can bring value, both dollar and time wise, to the project. Potential costs can be avoided through rigorous review of the potential change, and the project management team’s time can be saved by having the contract administration resource verify that the change is eligible or ineligible under the contract prior to reviewing the change request.
When planning your next major project, consider adding a dedicated resource for contract administration. Not only could this resource potentially save your project money through diligent administration of the contract terms, but it could also save you the headache of balancing the contract administration responsibilities with your other duties.